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What Canadian Buyers Need To Know Before Buying In Hawaii.
Canadians and Maui have had a long standing love affair with each other for quite some time now. As our largest group of foreign buyers we consider you as part of our Island Ohana (family). Below is some pertinent information for Canadian buyers to consider before writing that offer.
Title and Escrow
In Hawaii, we use title companies and escrow officers to handle the transfer of the property, including the deed. This is different from the process that you are used to in Canada. The escrow officer, in addition to your Realtor, will communicate with you regarding issues of title, signatures, inspection time lines or other issues dealing with ownership and title.
This process can take 60 days or longer to complete if the purchase is being financed. Cash transactions can be completed in 30 days.
Fees
There are a variety of fees and taxes that are customary in the U.S. that you may not be accustom to and are in addition to the purchase price of your property. These may include:
- Escrow Fees
- Title Insurance
- Appraisal Fees
- Attorney Fees
- Inspections
Your REALTOR® should be able to give you a breakdown and estimate of all the fees that apply to you and your transaction.
Loans
Mortgage Rules are different in the US, where you can finance up to 30 years.
Lenders must be licensed in Hawaii, so you can’t use a Canadian lender to finance a Hawaii loan, however, you can get a loan such as a second mortgage on your home in Canada and use the money from that loan to make a cash purchase in Hawaii. And don’t worry we have a lender based in Maui who finances foreign borrowers for all types of properties.
If you have established good credit that could make the lending process go more smoothly.
Canadians typically need at least 30% down to get a loan. Canadians also typically pay ½ to ¾ percent higher loan rate than standard domestic buyers.
Before making an offer on a property, it’s important to get pre-qualified by a Hawaii lender and gather the financial documents that will be required for the loan application, including pay stubs, tax returns, proof of available cash for down payment. See our financing section for a contact information on a Maui lender who specializes working with foreign buyers.
Taxes
Non-U.S. citizens are subject to FIRPTA (Foreign Investment in Real Property Tax Act). The act requires that 10-15% of the sale price is withheld from the seller’s proceeds at close of escrow to ensure U.S. taxes on the gain are paid. Once a U.S. tax return is filed, any over-payment is returned.
HARPTA (Hawaii Real Property Tax Law) requires that 7.25% of the sale price be withheld at closing.
There is 30% withholding on rental income to assure that US taxes are paid (if the Canadian owner doesn’t have a TIN – Taxpayer Identification Number).
All foreign investors will need a TIN number. If they are not renting their property they may not need this immediately, however, it will be required when they sell or rent the property.
Also, if a property will be rented to tenants or guests, the property owner needs to have a business license for collecting GET (General Excise Tax) and TAT (Transient Accommodations Tax) and needs to file regular returns to submit the taxes.
Real estate property taxes vary depending on how the property is being sold. See the Fidelity National Title & Hawaii Escrow link below for up to date tax rates for 2020-2021. Copy and paste this link to see the tax chart.
Canadians are urged to consult their tax attorneys regarding additional tax considerations, including estate taxes.
Signing Documents
Most documents can be done via docusign and anything that needs a notary the escrow company will arrange that with you for the notary to come to your home or office.
Utilities
If the utilities are to be in the name of the new foreign owner, as opposed to a condo-tel, Maui Electric will at least require notarized ID’s in order to open an account.
Keep in mind there are no mainland banks on Maui – only local Hawaii-based banks (No Wells Fargo, Bank of America, etc. branches exist in Hawaii). If you plan to have rental expenses such as electricity paid out of a Maui account or rental revenues deposited into a Maui account, you will need to open a local bank account.
Property Management
Off island property owners who rent their property are required to hire a licensed property manager to manage the property. Property managers for long term rentals usually charge a fee of approximately 10%, while short term property managers charge fees from 25%-40% or higher, depending on services provided and how the management company is structured. As investors we have short term and long term rentals on Maui and can guide you in the right direction when it comes to managing your Maui investment.
Terms and Definitions
Strata fees = AOAO fees
Subjects = contingencies: In Canada they typically remove the subjects within 7-10 days. Our contingency and inspection periods can be much longer.
As Is – In some instances in Canada when a home is sold, the seller must bring all aspects of the home up to code. In Maui, the seller is required to disclose anything that is not “in compliance”, and the home inspector may identify items that do not meet current code.
Many properties are sold “AS IS”, meaning that the seller will not make repairs to the property before closing. Repairs are typically negotiated during the contract inspection period for properties that are not being sold “AS IS”.
Owning property in Maui is always a great investment opportunity as well as an amazing place to call home when you need a break from the cold. Feel free to contact us with any further questions you may have. Mahalo.
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